Mid-Week Wrap: 19 June 2024
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Market Mood
The momentum strategy, which involves buying high-performing stocks and selling underperforming ones, has shown exceptional outperformance since the AI boom initiated by ChatGPT. While other factors have influenced the S&P 500's record-breaking performance, high interest rates, a slowing economy, and persistent inflation have presented significant challenges. Despite these obstacles, stocks have remained stable, driven by momentum from major tech companies. In a typical Goldilocks scenario, where growth and inflation cool without causing a recession, quality stocks with low debt would benefit. However, the current rally is heavily momentum-driven, with its rise due to artificial intelligence surpassing levels seen during the dot-com bubble in 2000. The sustainability of this momentum is in question, especially given the potential for abrupt reversals, as seen in 2020 when COVID-19 vaccine test results sparked investor optimism.